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Knee-jerk Reactions?

One of my pre-approved clients called yesterday to say that her Realtor wanted to know if I can approve her for a loan with 5% down-payment. It seems that there are increasingly more listing on the MLS with comments that 100% financing offers will not be considered. She has found 2 homes she liked but they didn't tender an offer due to that seller condition. While I appreciate the seller has the right to qualify a buyer and only wants to work with qualified offers, blanket decisions in our market seem like a major knee-jerk overreaction. This is still a buyer's market in Dallas.

I received a call yesterday from a listing agent who is calling to discuss a client of mine who submitted an offer on one of his listings. My client, the buyer, is pre-approved for 100% financing and this is NOT a sub-prime loan approval. Notice I said pre-approved and not pre-qualified. The underwriter has already reviewed and approved the client's credit, income, employment and assets.

The listing agent asked me questions which I am comfortable answering up to a point. Where did it get uncomfortable? When he asked me to disclose my clients' credit score. I told him I couldn't do that because I can't. Furthermore, what good is that information to him, other than to be PREJUDICIAL? He has no idea what programs Bank of America can offer and what our credit score requirements might be. This client could be pre-approved with a 565 credit score or a 765 credit score, but the only difference I can see in the listing agents' knowing the actual score is to prejudice the offer.

I think that Realtors need to understand that 100% financing is NOT dead. In my opinion, we've seen maybe a reduction in 15% of approvable mortgage customers due to the changes in sub-prime lending. That means that 85% of those who could have been pre-approved for 100% financing in January are STILL APPROVED. The majority of pre-approved buyers you see with 100% financing are solid, pre-approved buyers.

Now please understand that I'm comfortable talking to listing agents and in fact, think it is the listing agents' job to qualify the offer for his client. That's just smart business. Just be careful not to cross into territory where you pass on a qualified buyer due to your own misunderstanding of current mortgage availability.

100% financing is still very much alive and homebuyers shouldn't be concerned that their opportunity to own a home has gone away with the recent collapse of subprime financing. It is my job as a mortgage professional to approve my clients. It takes real estate professionals and mortgage professionals working together to make home-ownership a reality. Let's work towards the goal without bias and without eliminating qualified home buyers from the market.

Ken Stampe is a Mortgage Loan Originator, Mortgage Author and Mortgage Loan Officer Instructor living in Dallas, TX. Ken provided his first client a mortgage loan in 1996 and writes about home buying and mortgages to help clients make smart home mortgage loan decisions. Contact by email at Ken@KenStampe.com

What resource do SMART home buyers use?... Mortgage Calculator Bank.com

Posted by Ken Stampe iBrandPlan on 04/03/2007 12:41 PM

Comments (32)

100 percent financing, loan programs

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32 Comments on Knee-jerk Reactions?

APR

2007

Good points. It's amazing how fast the tide has turned from acceptance to fear in regard to 100% loans. If I receive a pre-approval letter from a reputable lender, that's one thing. But if the letter is from a no-name internet company, I'm going to ask the uncomfortable questions as well. Knowing that I can't cross that line of client confidentiality.

I think it's amazing that you were in front of a listing agent who's intelligent enough to check up on the loan letter!

Same scenario has happened here. I am not sure where it's coming from.

The only time I will discuss this information with other parties is when I receive permission from the applicant. Some Realtors don't understand the power of a pre-approval vs. a verbal pre-qual. The listing agent doesn't need to know the score - the loan is pre-approved.

Leigh - I'm cool with a listing agent asking me questions and have to agree that it doesn't happen all the time. Still.....the questions should be geared to determine accurate pre-approval of the client not seeking information to prejudice the buyer.

Pete - It's coming from the news, blogs, etc. that claims 100% financing is no longer which simply isn't true. But who expects the media to get it right?

You raise an important point. I think that there is a lot of confusion and some real estate agents thinks 100% is the same as sub-prime. Often I get permission from the buyer to have the real estate agent call the lender to confirm that the buyer is "good to go" without having to reveal anything like credit scores etc. This often works.

Who on earth would turn down an offer of 100% .... inquire about it etc. but turn it down? Not Me! there is too many circumstances that will still fit with 100% financing. However a smart agent would inquire and perhaps ask for certain criteria and possibly a conversation with the mortgage broker. What about the VA, FHA loans @ 100% and just this morning we were introduced to "The American Program Down Payment Assistance" program where the buyer can get 100% under certain criteria. As a sellers agent your eliminating your seller right off the bat from some fantastic opportunity's!

Ken, I blogged a similar post today...not about 100% offers being 'turned-down', but just about many folks going overboard about the mortgage industry because of the actions of 6% of the lending market! Granted, 100% loans need to be pre-approved with actual credit, income and assets, and job info. verified....but that's what a good loan officer is supposed to do, isn't it?

a Case of the listing agent actually hurting their client by being over cautious. Even a pre-approved buyer can suddenly become unable to purchase the home. I tell my sellers not to put to much into a lender letter. anything can happen to the buyers ability to qualify. I had a buyer one time go out and buy a computer on credit...it lowered his score enough that he could no longer purchase the home, all this one week before closing, and he was "pre-approved". Some lenders rules differ from others.

I have a borrower on State Bond Financing scheduled to close this week with 100% financing. The listing agent accepted the offer because she is familiar with this program, which has been around for many years, but expressed skepticism that she would ever accept 80/20 financed offers again because of the previous deal had flipped.

There is another thread going today about bad prequals, preapprovals and letters of loan commitment. I mentioned that one of the things I do to safeguard is to parallel track my buyers if they are coming in with an unfamiliar lender so that I can safeguard them and make sure that the loan will close. What are the other means to verify that a loan in front of us is a good one? There always seem to be problem loan officers out there?

Irene - That other agent is EXACTLY my point. Next week I'm closing a loan for a gentelman on an 80/20 program who makes over $350,000 a year but prefers to leverage the home instead of putting a down-payment into the deal. That kind of thinking is problematic and a disservice to the seller in my opinion.

I think it is prudent for a listing agent to call the loan officer on a pre-qualification or pre-approval prior to accepting the contract. Regardless of the loan officer's company being a "houshold name" or a complete unknown, you should call. I'm just as good as my job now as I was when I owned my own company but by some comments here the implication is that I'm BETTER now because you've heard of Bank of America.

Good or bad loan officers can get hired by any lender, so I think it is sensible to check. Now you ask what to ask for verification? Here's 4 suggestions I'd ask if calling a lender.

1) What's the name of the loan program? "80/20" is a construction of the financing and entails 2 loans. The first loan has to have a loan program name. If the loan officer can't tell you, then that would be a warning sign. The underwriter won't look at an "80/20" but will consider a submission on a 30 year fixed conventional 80% loan with a 20% 30 year fixed, 15 year balloon second lien.

2) What did the underwriter calculate the debt to income ratio to be and did they use current paystubs/tax returns, etc. or just the amount written on the application? Be prepared, this could be a stated income or no income loan, but if it is full income documentation then the loan officer should be able to answer this.

3) When did you pull the credit report and how long is it good for? Credit reports are usually good for 60 days, sometimes 90 days. If they pulled credit 52 days ago, that pre-approval may change if the underwriter re-pulls the credit report.

4) What additional underwriting conditions need to be met? Then judge for yourself if these seem like a laundry list that tells you something.

Due diligence is great, deciding not to accept offers from people pre-approved for 100% financing is NOT due diligence.

Ken- How do interest rates on the higher FICO 100% financing look lately (on both Full and stated) say 680 FICO and above?

Ken, thanks for the detailed and thoughtful response. I've saved your response so that I can access it when I need it. Since I frequently represent buyers, I think it is also a responsibility of the buyer's agent to perform due diligence with respect to any lender the buyer may bring to the table. It's not unsual for buyers who are preapproved to be working with a friend, relative, cousin or friend's loan officer so I try to check on them to be sure that they will be able to perform as promised. I also have my loan officer talk to theirs and have a conversation with the buyers about their options (when they are willing.)

Ken, I'm closing a 100% deal tomorrow and another one next week. Just closed on one last week where the buyer got $850 back at closing. It was a FHA tied in with a non-profit down payment assistance program. So that's 3 100% deals in the last 2 weeks BUT I also lost 7 in the last 30 days that were pending with subprime. My market is very much subprime territory and even though 100% is still available the recent shakeup has affected my market greatly. In time, I'm sure the void will be filled with other products. We can still do USDA rural housing in my area so these will probably be popular again. It should be interesting.

Unfortunately, a lot of agents in our business are woefully uneducated about mortgage financing. They read the news and run to the edge of the cliff.

100% financing is alive and well and thank goodness for it. The crash of the sub-prime market isn't going to affect what I do one bit.

Nice article and well timed. I just had this discussion with one of our newer agents yesterday. He was frustrated because he has a 100% buyer that put in a good offer but the listing agent and seller were reluctant to accept it without some deposit money. Told him to enlighten the listing agent that regardless of how much money is sitting in escrow if a buyer does not get commitment the deal falls apart. Suggested he offer to have the listing agent talk to the buyer's loan officer to get the warm fuzzy feeling to pass on to the seller.

Ken, thanks for the information. I am sure that most agents are going through similar situations.

Hey Ken! You know I respect your opinion, and I completely agree with you on the 100% and pre-approved issue. The part I disagree with you on is that this is not a buyer's market. I got multiple offers on a listing 4 days on the market. 4 offers!! I sold the Hardgrave's house in 3 weeks! They bought, as you know, a house that wasn't even on the market! Overall, Plano and Richardson are selling at 98% of list price.

I wouldn't say it's a seller's market because you can't just ask whatever you want. But I know my sellers are pricing right and they're selling fast!

I digress, yes, 100% financing is still alive and well!

I'm not sure what some agents are being fed or were they're getting their info. but here's my story.

My client liked a property and asked that we submit an offer. My client is Pre-Approved for 80% financing 20% down with Good fico score. Not a problem! But much to my surprise, the listing agent mis-understood said HE (not his client) would NOT ACCEPT an offer of 100% financing(last time I checked, agents are to present ALL offers to their clients and they decide) said there were no longer 100% loans available also said that their fico needed to be 680 and above or once again he would not accept the offer!! needed proof of funds from my client and since my clients proceeds were coming from the sale of my clients home (in escrow), THE AGENT requested my clients buyers info. such as credit scores, pre-approval letter, and proof of their funds!!!!!!!!!!! I COULD NOT believe my ears. Who in the world trained this guy! He's making decisions for his clients and and on top of that, ignorant! I would hate to be his client. Not sure how many buyers he's lost but I do know of one!

Fortunately, my story has a happy ending, my client found a home and the offer was accepted. Escrow is scheduled to close mid April.

You know, as a listing agent I don't care if they get 95% or 100% or 20% of their money from the bank as long as it spends the same way.

This seems over the top....

As a listing agent I never liked 100% financing or 95%, no matter what kind of market we were in. Too easy for these loans to fall apart at the last minute, big appraisal problems, etc. I would take a 10% LTV or cash on a lower sale price any day, just to avoid the hassle these loans cause.

Ken... I really can't offer too much more than what was said. I agree.... it's great that the listing agent asked, but as you stated, there is only so much that you can divulge. ...period. The biggest thing, you have a pre-approval, not a pre-qual.

Ken.... I hope this is not hijacking... just let me know. But I wrote this a few weeks ago. As PROFESSIONALS, we need to RAISE the bar & educate consumers......... My whole point, I think you handled it perfectly. And we need to make others aware of what is going on, may it be the realtors or the consumers out there. Good post.

jeff belonger

PS... I am just reading some of these comments... and Lenn Harley said it best. I really do hate when someone thinks that 20% down is better than 10% down. Why do I say this, I have seen the 20% down loans fall apart also. It comes down to compentent loan officers. And as stated, the public running because of the media.

Again, good post.

jeff belonger

LOL, I almost suggested to you earlier that you should blog about this..... I see that you went ahead and posted it...

Good job!!

This has happened to me.... pretty much as you described.

Donna - there's the average DFW market and then there's those selllers fortunate and smart enough to work with a SUPER agent like you. I mean that sincerely. You do more for your listings with your staging and other hard marketing efforts then nearly any other Realtor I have met. You do great work!

Hi Ken,

Great post and thanks for details on specific questions to ask the lender. I always call the lender to find out just how strong the letter is, so I'm a bit surprised to hear that this is not standard practice for listing agents.

APR

2007

Ken,

Great post, you make a good point in that 100% financing is not dead.

Ken,

Thanks for a great post and delivering some upbeat information about our mortgage market. There is so much bad press and everyone seems to want to dwell on the negative. IMO, the negatively of the so-called press only exacerbates the problem, no matter what the subject matter may be. If more positive and upbeat themes would be conveyed in our newscasts and publications many of our woes could be put behind us more rapidly.

APR

2007

Wow,

I find it odd that a Realtor would deny their client a bid that could sell their house and earn them a commission. I certainly want a honest agent working for me that has the seller best interest at heart if I was a seller but he is doing his clients a disservice by not presenting all offers. If the offer is valid , backed up by a legitimate pre approval , why does the Realtor care if the money is coming from the buyer sock draw, let alone the % that is being financed. He does not seem to be looking out for his client, and trying to sell the home.

Thank you for educating people on this.

Good Post. I hope that most of the professionals realize that there is certain information that a financial institution not only cannot reveal, but could be held liable if they did reveal confidential information about a borrower.This is beyond the fact that the borrowers trust is all important.

In the last couple of months, every 100% mortgage that I have doen has been with high credit and solid assets. Just luck of the draw that has been the case. We never know who will qualify for what program until all the information has been gathered.

I agree also that it is easier to truly get a pre-approval up front. That way not only does the realtor know, but the borrower can make a quick decision when they find the right property.

APR

2007

Ken. Great post. It appears from reading the thread that other are in agreement.

Have a nice Easter weekend!

-Meg

MAY

2007

Very Nice Post Ken! I love and appreciate how you differentiate pre-approved vs. pre-qualified....so true. As far as the offers would-be sellers are willing to entertain....as long as all parties know exactly how qualified (without divulging personal info) the prospective buyer is, they shouldn't balk at 100% financing approval.

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